Section 1111(b) election: A partially secured creditor may claim
to have her claim in a Chapter 11 case treated as secured to the
full extent that the claim is allowed even though, under section
5()6(a), it otherwise would be considered secured only up to the
value of the collateral. [B.C. §1111(b)(2)]

(1) Example: Debtor owes $500,000 to Creditor, pursuant to a
non-recourse loan secured by a first mortgage on Blackacre, which
has a fair market value of $400,000. Creditor's claim is classified
in a separate class from the other claims in the case, and Creditor
makes the election, under section 1111(b), to have her entire
$500,000 claim treated as secured. Subsequently, Debtor defaults on
payments to Creditor under the confirmed reorganization plan, at a
time when Blackacre has appreciated in value to $500,000. In this
instance, the effect of the election will be to enable Creditor to
recover the full amount of her claim.

(a) Compare: Assume the same facts as above, except that Creditor
does not make the section 1111(b) election. Following Debtor's
default, a third party bidder pays $500,000 for Blackacre at the
foreclosure sale. .Since Creditor's allowed secured claim was
$400,000, the surplus of $100,000 will go to Debtor's estate.
Creditor's recovery will lie limited lo $400,000, plus whatever
percentage she is entitled lo under the plan on her unsecured claim
for a deficiency

(2) Exceptions: The section 1111(b) election cannot be made under
either of the following circumstances:

(a) If the creditor's interest in the property is of inconsequential
value.
and in the case of a low priority junior lien would be or minimal
recovery at foreclosure ; or
(b) The creditor has recourse and the collateral is sold under
section 363

(3) Waiver of deficiency claim: if the section 1111(b) election is
made, the secured party forfeits her unsecured claim for any
deficiency and also loses the opportunity to affect the decision of
the unsecured class to accept or reject the plan of reorganization.
(B.C. §1111(b)(2); Bankruptcy Rule 30l8(d); In re Southern Missouri
Towing Service, Inc., 35 Bankr. 313 (Bankr. W.I). Mo. 1983))

(a) Example: Assume the same facts as in the first example above,
except that the value of Blackacre has depreciated to $300,000 at
the time of Debtor's default after confirmation. Because Creditor
made the section 1111(b) election, she loses her unsecured claim for
a deficiency and her recovery will be only $300,000.

(4) Preventing a cash out: The section 1111(b) election sometimes is
invoked where the plan proposes no payment to the unsecured
creditors, and the electing creditor desires to avert a cash out for
the value of her collateral.

(5) Cram down: Where a
secured creditor making the section
1111(b) election rejects the proposed Chapter 11 plan, confirmation
can be obtained under the Code's "cram down" provisions if the plan
(in addition to providing for the creditor's retention of her lien)
proposes to pay the electing creditor deferred cash payments (i)
which equal at least the full dollar amount of her allowed claim
(without interest), and (ii) which have a present value, as of the
effective date of the plan, of at least the value of the collateral.

(a) Example: Creditor loans Debtor $500,000, secured by a first
mortgage on Blackacre, which has a value of $600,000. Debtor
defaults and then files a Chapter 11 petition. Blackacre has
depreciated and is worth $400,000, and Creditor makes the section
1111(b) election. The proposed plan provides for Creditor to retain
her lien on Blackacre and to receive deferred cash payments on her
claim. Creditor rejects the plan. For the plan to be confirmed over
Creditor's rejection, the proposed payments must total at least
$500,000 and must have a present value, as of the effective date of
the plan, of at least $400,000. (B.C. §1129(b)(2)(A)(i); In re
Southern Missouri Towing Service, Inc., supra, §1005]

(6) Time of election:

The section 1111 (b) election may be exercised at any time before
the end of the hearing on the disclosure statement or within a later
time set by the court. [Bankruptcy Rule 3014]